Introducing Investment Quality: A Systematic Equity Strategy Factor
categories: Portfolio Management Analytics, Americas, EMEAI, Risk Management Analytics, Factor and Risk Modeling, Investing (Investment Management), Performance Analysis, Portfolio Construction and Optimization, Risk Management, Asia Pacific, Asset Owners, Hedge Funds, Equities, Research Paper, FANG Ting, Asset Managers (Quant or Fundamental), general
In this Research Insight, we introduce Investment Quality, one of the Systematic Equity Strategy (SES) factors modeled by MSCI Equity Analytics Research. Based on multiple studies identifying Investment Quality’s historical effect, MSCI constructed the SES Investment Quality factor by combining three descriptors: low issuance growth, low asset growth and low capital expenditure growth. Our analysis of global equity returns for this factor over the 20-year period from 1996 to 2015 revealed persistently positive returns from 2002 through 2015. The factor performed especially well during volatile periods, such as the 2008 financial crisis, again in 2015 and during the first months of 2016. While companies with high Investment Quality characteristics may seem attractive, this factor has a wide following among investors, which might lead to significant crowding risk.